Keynes Was Right

It is worth pointing out that the British economic policies that have led Britain back into recession are exactly the same policies pushed by Congressman Ryan and other Republicans in Congress. What we need, instead, is more government spending to bring us back into prosperity.

I am not the only one who has come to that conclusion. Increasingly, members of the business community are recognizing that austerity is exactly the wrong approach.

Read, for example, this article in Business Insider by its editor, Henry Blodgett. Blodgett explains clearly why austerity doesn't work:

"The reason austerity doesn't work to quickly fix the problem is that, when the economy is already struggling, and you cut government spending, you also further damage the economy. And when you further damage the economy, you further reduce tax revenue, which has already been clobbered by the stumbling economy. And when you further reduce tax revenue, you increase the deficit and create the need for more austerity. And that even further clobbers the economy and tax revenue. And so on."

Of course, that is what Keynesians have been saying all along. 

So, how did we get where we are? Blodgett explains:

"Most of the debt mountain we've piled up is the result of what we did before the crisis, not after it. In the years leading up to 2007, our absurdly undisciplined leaders took a nice big budget surplus and then squandered it. And they created absurdly loose lending standards and encouraged the whole country to lever up and buy stuff we couldn't afford. And they never said "no" to anything except tax increases, no matter what, and denied all the structural problems that were building up for decades.

"And by 2007, they had put us in one hell of a hole.

"And, given that, it seems reasonable to think that, as Krugman has long argued, one of the problems with the economy now is that the original stimulus just wasn't big enough."

By the way, businessmen realize that the problem holding back business investment is lack of customers (aggregate demand), not regulation or "confidence" in any psychological sense. Show them some customers and they will invest.